To our thinking, analyzing US labor market data has 2 central purposes right now:
- Assessing where we are in the post-COVID Crisis reopening process. The math here is simple: X jobs added since the lows for employment, Y jobs left before we’re back to pre-virus “normal”.
- Determining what pressure from their constituents DC policymakers really feel as they negotiate another fiscal stimulus package this month.
Make no mistake: the S&P 500 isn’t at 3,130 because markets believe in a self-sustaining V-shaped economic recovery. It sits durably around 3,000 because investors expect another large dose of fiscal stimulus. This will backstop 2H 2020 corporate earnings and give the US economy’s flywheel another shove in the right direction.
Here’s what today’s US labor market reports had to say on these issues.
#1: First, the Unemployment Insurance (UI) report, where we focus on non-seasonally adjusted continuing claims as a way to fill in the “X” and “Y” of the first bullet point above:
- On the plus side: 5.2 million fewer Americans are receiving “normal” Unemployment Insurance now than at the worst levels of the COVID Crisis. Round numbers, we have 23 million jobs to bring back. Five million is 22% of that, so we have 78% to go (18 million) as of June 13th. We’re making progress, though…
- On the downside, there is a separate classification of under- and unemployed in the UI data series – those workers who receive Pandemic Unemployment Assistance (PUA). These payments go to part time workers (including students), business owners, those who are technically contractors rather than employees (think Uber drivers, for example), and others who can show that the COVID Crisis has hurt their income.
The latest numbers here aren’t good: the total number of workers in PUA rose for the week of June 13th to 12.8 million, a 1.8 million person increase.
Summary: with 31.5 million American workers receiving some form of pandemic-related income replacement, Congress has no choice but to act later this month before enhanced benefits run out. Most of these workers vote, and we have a US general election in 124 days.
#2: Now, let’s look at the Employment Situation Report, also out today:
- The total number of Americans who report as “Unemployed” closely matches the number of people receiving non-PUA unemployment benefits: 18 million. There’s some squishiness to this data (it is just a survey, not a hard count like UI), but it implies that the vast majority of PUA recipients are at least partially employed.
This, on balance, is good news: PUA is helping part-time and contract workers, but they remain attached to the labor force and are receiving something in the form of compensation.
- The labor force participation ratio (LFP, workers + unemployed/total population) was 61.5% in June, halfway back to where it was in 1H 2019 from the April lows of 60.2%.
This is another positive for 2 reasons. First, it means June’s surprisingly OK unemployment rate of 11.1% was not juiced by declining LFP. Secondly, it shows that unemployment insurance is doing what it’s supposed to do: keep workers looking for work rather than becoming discouraged and exiting the labor force for good.
- African American unemployment, which is a proven indicator of the underlying health of the US labor market, declined last month to 15.4% from 16.8% in May. That is still higher than the average, but it is now moving in the right direction and LFP for this cohort is increasing as well (60.0% vs. 58.6% in April).
Summary: the headline numbers from the Jobs Report also reinforce the idea that enhanced unemployment benefits and PUA have done a good job in sustaining the US labor market. Fiscal stimulus more broadly (adding CARES Act stimulus checks, PPP on top of UI) kept the US economy running in April and May. Unemployment insurance has kept workers attached to the labor force since then, and June’s data shows many who had given up on finding work at the height of the pandemic now see the chance for gainful employment.
The bottom line to all this: the numbers today were bad enough to send the signal to DC that they must pass further stimulus, but good enough to show policymakers that there is light at the end of the tunnel. While we still don’t think US stocks rip from here (Q2 earnings season starts in a week!), today’s data certainly supports optimism as long as Washington passes fresh stimulus this month.